Reducing the scope of the divisible pool in the context of the ongoing National Finance Commission (NFC) award and reforming the revenue sharing formula to improve inter-provincial equity for better horizontal equity, is a component of the Memorandum On Economic and Financial Policies (MEFP) agreed between Pakistan's economic team led by Adviser to the Prime Minister on Finance Hafeez Sheikh and Governor State Bank of Pakistan Raza Baqir and the International Monetary Fund.
NFC award is a consensus document between the Centre and all provinces and is not within the purview of a ruling party that does not form a government in all provinces (especially one which is in active conflict with the government of Sindh). When asked by Business Recorder how could the government deliver on this programme condition during a media interaction on 25 May 2019 Hafeez Sheikh first denied that it was a part of the staff level agreement. When he was shown the document uploaded on the IMF website on 12 May 2019 stating, "To improve fiscal management the authorities will engage provincial governments on exploring options to rebalance current arrangements in the context of the forthcoming NFC," Sheikh added that the government is not bound to implement IMF conditionality.
The federal government has pledged to the Fund that "to rebalance inter-governmental relationships, in the context of the ongoing NFC, we have engaged with provinces with a view to make progress on the following measures: (i) reducing the scope of the divisible pool in the context of the ongoing NFC award. Reforming the revenue sharing formula to improve inter-provincial equity for better horizontal equity; (ii) passing on additional spending responsibilities from the federal to provincial governments, including additional contributions for higher education, health, social protection, agricultural subsidies, and regional public infrastructure investment;(iii) creating a jointly funded contingency fund for economic shocks and natural disasters, to reduce federal/provincial structural fiscal imbalances; and (iv) the provinces will take steps to increase own tax-collection efforts in sales tax on services, property tax, and agricultural income tax, and harmonize their tax system to eliminate fragmentation.
The chief negotiators on behalf of Pakistan also "signed a formal written agreement with the provinces on the fiscal strategy and the required provincial surpluses, including revenue and fiscal surplus targets by province for fiscal year 2020 and implications in case of missed targets." However the staff report claims that "this agreement has been made public to ensure accountability and measure progress and performance (prior action). Progress toward these goals will be assessed in quarterly meetings of the Fiscal Coordination Committee, and we will aim to strengthen the FCC's legal basis to make its decisions binding".
Business Recorder contacted several senior ministry of finance officials by phone given that the staff report claimed that the agreement has been made public but were given the run around and palmed off from one official to the next. Request for a copy by text message remained unanswered till the filing of the report.